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US economy won’t recover fully until there’s a coronavirus vaccine, says Federal Reserve chairman

Jerome Powell warned of a 30 per cent contraction, but reminded that crisis does not stem from economic dysfunction

Andrew Naughtie
Monday 18 May 2020 11:27 BST
Fed chairman Jerome Powel says US economy can recover 'substantially'

The chairman of the Federal Reserve, Jerome Powell, has said that while the US’s economy should recover “substantially” from what looks to be a devastating recession, it will first shrink by as much as 20-30 per cent this quarter – and that a full rebound will probably only be possible once a coronavirus vaccine is in use, most likely towards the end of next year.

Speaking on CBS’s 60 Minutes, Mr Powell made clear that while the economic disaster wrought by the pandemic is a dire one indeed, the US can take heart from the fact that it does not reflect fundamental flaws in the economy’s functioning before the virus hit.

“Let’s remember though that this is something that we’re doing as a society, really, to protect ourselves from the virus. This is not because there was some inherent problem, a housing bubble or something like that or the financial system in trouble. Nothing like that.

“The economy was fine. The financial system was fine. We’re doing this to protect ourselves from the virus. And that means that when we do that, when the virus outbreak is behind us, the economy should be able to recover substantially. And I expect that it will recover substantially, but that it will take some time.”

American workers are currently enduring their worst crisis in decades. More than 36 million people have applied for unemployment benefits in the two months since the coronavirus first forced businesses to close down and cut their workforces. At 14.7 per cent, US unemployment is now at its highest since the Great Depression, and is widely expected to go much higher.

Comparisons have been made in some quarters to the Great Depression, but on 60 Minutes, Mr Powell downplayed them. While acknowledging that unemployment could peak near the Depression high of 25 per cent, he noted that American banks are far healthier now, and that both the Fed and other central banks are more willing and able to intervene than they were in the 1930s.

Still, Powell cautioned that it would take time for the economy to return to anything close to normal. A recovery “could stretch through the end of next year,” he said bluntly, and a vaccine would likely be necessary for Americans to feel safe enough to resume shopping, travelling, eating out and gathering in large groups – activities that fuel much of the economy’s growth.

Donald Trump has lately been making exuberantly optimistic predictions about the prospects for economic recovery, declaring at a press conference on Friday that “vaccine or no vaccine, we’re back”.

He has simultaneously promised a vaccine will be ready as soon as early next year, despite experts’ forecast of an 18-month process, and speculated that it might not be necessary to develop a vaccine at all: “In many cases, they don’t have vaccines and a virus or a flu comes and you fight through it.”

Yet while Mr Trump’s sunny forecasts have been dismissed by many experts as uninformed and perhaps wilfully naïve, Mr Powell did make clear that once the conditions are right, the US has the foundations it needs to restore itself to full economic health, however long it takes.

“In the long run, and even in the medium run,” Mr Powell said, “you wouldn’t want to bet against the American economy. This economy will recover. And that means people will go back to work. Unemployment will get back down. We’ll get through this.”

With Associated Press

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